Growing our International Footprint INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE TH AUGUST 2014

Transcription

1 Growing our International Footprint INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE TH AUGUST 2014

2 AGENDA Part 1 Commentary and results overview Mutlu acquisition Vision and strategy Part 2 Financial overview Mutlu Financial overview Refinancing Part 3 Operational review Start/Stop battery development Prospects 2

3 COMMENTARY & RESULTS OVERVIEW 3

4 COMMENTARY AND RESULTS OVERVIEW Observations Pleased and grateful First results that include Mutlu Akü for a full period Complicated result - Mutlu Akü being a second half company An additional 46.4 million shares in HEPS calculation PPA additional depreciation of R17.9 million Debt brings R40 million interest charge about Financial Revenue up 32% to R3,235 billion Operating profit up 16% to R318,7 million EBITDA increased to R485 million Cash generated from operation R335 million Net asset value per share up by 37% to R19.84 HEPS only 16% down to 120 cents Mutlu Acquisition Excellent first half performance exports up 35% PBIT increases by 500% from R15 million to R90 million Carried full weight of additional group interest and depreciation charges Shareholding increases from 75% to 96.7% Minority squeeze out process started Integration according to plan 4

5 COMMENTARY AND RESULTS OVERVIEW Refinancing Operating OE Segment Operating Aftermarket Mutlu Akü acquisition done: 50% equity and 50% debt Bridge facility from ABSA R1,350 million Refinancing process post acquisition Restructuring required for preference share scheme Preference share with 5 years maturity for R1,400 million at 69% of prime Revolving credit facility at JIBAR plus 205 basis points South Africa, Turkey and European OE market down Romanian OE market stable and growing SA OE market down on launch of new model SA OE market down on increased import duties in Africa exports markets effecting final operating profit margins No evidence yet of negative long-term volume fallout on current production models due to labour climate Small structural reset in volumes due to macro-economic developments Mutlu export market strong increased by 35% Metair now exporting to approximately 46 countries SA demand strong - good performance from FNB and ATE RARE marketing program launched Brand building and brand product range expanding European market soften on the back of mild winter 5

6 STRIKE EFFECTS-GENERIC Short term (During Strike) Always negative Loss of sales and profit Stress on labour relations Stress on industry relations Disruptive Contingency plans need to be put in action Medium Term (After Strike) Catchback programs to mitigate negative effect Mitigating strategies have to be designed Overtime and weekend work Increasing sales due to catchback Increasing workload Other fluctuations Long Term (After Strike) Manufacturers re-think strategies Increase in production cost and inflationary effect Labour cost competiveness re-balance World view on SA as production destination Loss of markets and market share View on labour climate in SA Destabilisation of manufacturing environment 6

7 STRIKE EFFECTS-SPECIFICS Dispute Numsa-Seifsa strike 4.5 week period Some component manufacturer s affected 1 st /2 nd and 3 rd tier Margin pressure on OE sector 3 year agreement, 10% increase level per year Not accepted by smaller industry employer grouping Watered down peace clause Contingency plans well executed Some OEM s closed down at start of strikes (safety and security) Stock build up at OEM s and suppliers prior to strike Most able to continue for at least 2 weeks At least 2 continue to work for the full period Metair aftermarket production not affected Good plant level relationship makes it possible to circumvent strike at FNB Long term opportunities lost APDP launch set higher vehicle manufacturing base in SA at 650k-700k level APDP counter some of the possible negative long term effects of labour unrest Labour disruptions strain delivery of APDP objective of 1.2 million vehicle s Labour disruptions to date leads to loss of possible further expansion opportunities BMW not launching 2 nd platform production in SA Nissan focus on Nigeria as a possible manufacturing destination Some OEM s stopped studies to further increase production on current model Destabilisation of manufacturing environment 7

8 WHY ARE WE PLEASED AND GRATEFUL Structural challenges Number of shares in issue increased by 30% from 152,5 million to 198,9 million Increase in interest bearing debt to R1 400 million Additional interest and depreciation charges of R60 million Acquisition related charges increase represents 28% of previous years earnings Long term effects of strikes unknown Only acquired 75% of Mutlu Akü Theoretical decline risk First half challenge to maintain HEPS Like for like for first half Mutlu performance would have been (-R29) million HEPS decline could have been down to 91 cent per share Theoretical decline could have been 37% on HEPS Mutlu Akü traditionally a second half contributor Continued challenging labour relations environment Actual results Mutlu Akü performance up 500% from R15 million to R90 million Mutlu group net profit contribution R60 million HEPS only down 16% No loss of vehicle production due to labour disruption Structural volume reset in OE export market in SA combined with margin contraction due to labour cost re balance Metair major customer affected by import duties in exports markets 8

9 VISION & STRATEGY 9

10 VISION AND STRATEGY Vision To generate value for all our stakeholders by managing and controlling businesses that through manufacturing and/or logistical excellence, deliver quality, cost-competitive products to our customers in a sustainable manner Strategy Continue to target balance in the business Nurture Original Equipment (OE) business and expand Original Equipment Manufacturer (OEM) customer base Focus intently on cost Secure and grow aftermarket product range Grow Africa footprint Focus on transfer of battery technologies to facilitate AGM and EFB growth. 3 X 50%=100% Strategy 50% of business in OE sector 50% of business in Aftermarket, non-auto and exports 50% of overall business in batteries 10

11 PERFORMANCE AGAINST STRATEGY Jun-13 OE market OE 49% 61% Jun-14 0% 10% 20% 30% 40% 50% 60% 70% Aftermarket & Non-automotive AF* 39% 51% 0% 10% 20% 30% 40% 50% 60% 70% 39% Batteries Batteries 55% 0% 10% 20% 30% 40% 50% 60% 70% 11

12 FINANCIAL REVIEW 12

13 FINANCIAL HIGHLIGHTS ITEM June 2014 R 000 June 2013 R 000 Revenue Income statement EBITDA Operating profit Operating income margin 9.9% 11.1% Profit after tax ITEM June 2014 R 000 June 2013 R 000 Attributable profit Shareholder performance Earnings per share Weighted avg number of shares Headline earnings per share Net Debt ( ) (53 893) Dividend per share(gross of WHT) 70 cps 95 cps 13

14 OPERATING PROFIT Operating profit ,10% ,90% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 250 June 2013 June % OPERATING PROFIT OPERATING INCOME MARGIN Three main contributors to the decline in operating margins Mutlu Akü effectively reported operating profit of R73 million, at a 8,3% margin (taking into account R17 million of fair value additional depreciation) for the six months Local OE margin decline of c. 2,4% Local Aftermarket decline of c. 4,3% 14

15 R million R million HEADLINE EARNINGS PER SHARE(HEPS) Headline earnings June 2010 June 2011 June 2012 June 2013 June 2014 HEPS June 2010 June 2011 June 2012 June 2013 June 2014 Trends Although headline earnings growth over recent historical period HEPS down for first time due to seasonality of Mutlu and additional shares in issue 15

16 BALANCE SHEET-ASSETS Non-current assets ITEMS Dec 2013 R million June 2013 R million June 2014 R million Non-Current assets Property, plant and equipment Intangible assets Other non-current assets ITEMS Dec 2013 R million June 2013 R million June 2014 R million Current assets Current assets Inventory Trade and other receivables Cash and cash equivalents Total assets Comparison to prior periods Half-year comparison significantly impacted by Mutlu Inventory increase due to stock buildup leading up to potential strike Maintain healthy cash position 16

17 BALANCE SHEET-EQUITY AND LIABILITIES Equity & non-current liabilities Current liabilities Comparison to prior periods ITEMS ITEMS Dec 2013 R million Dec 2013 R million June 2013 R million June 2013 R million June 2014 R million Total equity Non-current liabilities Borrowings Post employment benefits Deferred taxation Deferred grant income Provisions for liabilities and charges June 2014 R million Current liabilities Trade and other payables Borrowings Provisions for liabilities and charges Bank overdrafts Total liabilities Trade and other payables reduced significantly as Mutlu minority liability decreased to R65 million from R612 million at December Borrowings have been refinanced. Bridge disclosed as current, but is now longterm preference share Debt : Equity at c. 40% 17

18 INCOME STATEMENT ITEMS 30 June June 2014 R'million R'million Revenue Operating profit Gross Profit Other operating income Distribution, Administrative & other expenses (270) (471) Operating profit ITEMS 30 June June 2014 R'million R'million Profit for the period Net interest expense (5) (42) Share of results of associates Profit before taxation Taxation (78) (59) Profit for the period Attributable to: Equity holders of the company Non-controlling interests Other items to note Other operating income increased: APDP benefits, Rombat grant unwind, inclusion of Mutlu Net interest increased in line with our borrowings Taxation benefit from lower tax rates in Turkey and Romania, combined with effects of our restructuring 18

19 R million R million SEGMENTAL ANALYSIS 2,000 1,692 1,738 Jun-13 Jun-14 Margin % 1,500 Local revenue 1, Original Equipment Aftermarket Non-auto % 18% Local PBIT ,2% 6,8% 118 9,2% 6,8% 15,5% 92 11,2% ,2% 5,5% 41 13,3% 16% 14% 12% 10% 8% 6% 4% % - ORIGINAL EQUIPMENT AFTERMARKET NON-AUTO 0% 19

20 R million SEGMENTAL ANALYSIS % 18% Local PBIT and Margins ,2% 118 6,8% 15,5% ,2% 5,5% 13 13,3% 41 16% 14% 12% 10% 8% 6% 4% 2% - ORIGINAL EQUIPMENT AFTERMARKET NON-AUTO 0% Local OE margin contraction - Labour - Structural Volumes - Model changes Jun-14 Jun-13 Margin % Labour disruptions result in unpredictable manufacturing patterns and volumes Manufacturing varies between high, low or no production, which results in higher manufacturing cost Another factor that impacted stability is model changes, where old models are phased out and new models phased in How do we get back to normal margins: Stability of production Local AM margin contraction Focused on improving market share Aftermarket delayed pricing increases to protect and gain back market share Mutlu Akü Aftermarket margins low during first half of the year, also did not want to enter the market with a big price increase. 20

21 R million R million SEGMENTAL ANALYSIS Export revenue ORIGINAL EQUIPMENT AFTERMARKET NON-AUTO Jun-13 Jun-14 Margin Export PBIT ,7% 7 14,1% ,7% 25 8,7% 7,6% 8,7% 7,6% % 18% 16% 14% 12% 10% 8% 6% 4% 2% 0 ORIGINAL EQUIPMENT AFTERMARKET NON-AUTO 0% Jun-13 Jun-14 Margin 21

22 MUTLU VOLUMES Original market FULL-YEAR Automotive Units YTD 2013 YTD Original Equipment - Local FULL-YEAR Automotive Units YTD 2013 YTD Aftermarket Aftermarket - Local Export Total Volume Volume movements OE Ford and Renault going through model changes Aftermarket Aftermarket local volumes in line with prior year Export 35% up devaluation of TL assisted in competitiveness 22

23 MUTLU INCOME STATEMENT EBITDA ITEMS 30-Jun Jun-14 YTD R'million R'million 2014 vs 2013 R'million Sales revenue % Cost of sales (557.1) (614.2) 10.2% Gross margin % Gross margin % 27.7% 31.0% Operating expenses (152.1) (150.5) -1.1% Other operating income (Incl. forex) nm EBITDA % Exchange rate used ZAR 5 : 1 TRY Improvement in EBITDA Sales revenue and margin improved - Mix change (less OE more export) - Significant cost containment and drive to improve efficiency Operating expenses reduced despite high inflation Other operating income: Forex losses contained 23

24 MUTLU INCOME STATEMENT Profit after tax ITEMS 30-Jun Jun-14 YTD R'million R'million 2014 vs 2013 R'million EBITDA % Depreciation and amortisation (37.0) (37.8) 2.0% EBIT % Operating profit % 2.0% 10.4% Net finance cost (6.0) (6.0) Profit before tax % Tax on profit (1.8) (15.1) nm Profit after tax % Exchange rate used ZAR 5 : 1 TRY Improvement in profitability Improved margin, cost containment and forex management resulted in PBIT increasing to R90 million Operating profit percentage increased to 10,4% Although borrowing costs almost doubled in Turkey, net finance cost remained at R6 million. 24

25 MUTLU FOREX & INTEREST CHARGES ZAR (millions) 1 Jan - 30 June Jan - 30 June 2014 FOREX Net Foreign exchange (losses)/gains (21.3) 0,3 (Incl. operating profit) Net USD BoP (stated in ZAR) Net USD EoP (stated in ZAR) TL:USD BoP TL:USD EoP

26 REFINANCING Bridge facility Acquisition phase 1 (Bridge facility) Bridging facility ZAR in m illions Margin to JIBAR ABSA bps Cleared bps Refinance outcome Acquisition phase 2 (Refinancing) Salient terms of refinancing ZAR in millions Preference share allocation SBSA Rate of prime Cleared % RCF allocation SBSA 150 ABSA 300 Investec 300 Margin to JIBAR Cleared bps Very pleased with outcome of refinancing 5-year redeemable reference share and 5-year revolving credit facility Unsecured, flexible structure Covenants: 2,0 X EBITDA incurrence covenant and; 2,5 X EBITDA maintenance covenant Dividend interest cover ratio of 3,0 times 26

27 REFINANCING Abbreviated Group Structure (After) Metair Investments Limited 100% Inalex (Pty) Ltd 100% New funding entities Nikisize (Pty) Ltd Metair subsidiaries Redeemable preference share issuer Original RCF borrower 27

28 OPERATIONAL REVIEW 28

29 AUTOMOTIVE MANUFACTURING EFFICIENCY AND COMPETETIVENESS Manufacturing Input Manufacturing Output Vehicle Stocks Market Demand STABLE (Pull) Materials Labour Facilities Manufacturing Input Manufacturing Output Vehicle Stocks Market Demand UNSTABLE (Chaos) Detecting any structural volume changes is very difficult in an unstable environment. 29

30 WORKING CAPITAL R million ITEM June 2014 June 2013 Dec 2013 Inventory Trade & receivables Trade & payables (688) (653) (860) Total DAYS June 2014 June 2013 Dec 2013 Inventory Trade & receivables Trade & payables (42) (48) (44) Total All days calculations based on turnover Based on Pro forma turnover 30

31 VEHICLE PRODUCTION PER OEM IN SOUTH AFRICA (NAAMSA) OEM Actual (6-months) 2014 Actual (6-months) Notes BMW MBSA FMCSA GM NISSAN VW SA TOYOTA Adjustments TOTAL Notes: 1. Low production in the first 5 months of 2014 due to new model ramp up 2. Reset of LCV Export markets due to adjusts to changes in regional macro economic conditions 31

32 VEHICLE PRODUCTION PER OEM IN IN TURKEY H H OYAK RENAULT FORD TOFAŞ HYUNDAI TOYOTA TURK TRAKTOR MERCEDES BENZ TURK HONDA OTHERS AIOS(ISUZU) OTOKAR TEMSA HATTAT TARIM KARSAN MAN BMC TOTAL

33 2014 CAPITAL EXPENDITURE COMMITMENTS* GROUP - Approved Sector R 000 Maintenance Expansion Efficiency Total OE Aftermarket/Non-auto Property Total * Includes authorised and committed capex 33

34 2014 CAPITAL EXPENDITURE COMMITMENTS* ROMBAT - Approved Sector R 000 OE Maintenance Expansion Efficiency Total Aftermarket/Non-auto Total MUTLU - Approved Sector R 000 OE Maintenance Expansion Efficiency Total Aftermarket/Non-auto 23,7 23,7 Total 23,7 23,7 * Includes authorised and committed capex 34

35 ACQUISITION INTEGRATION ROMBAT According to plan Start/Stop facility installed and commissioned Opening of Start/Stop facility by Romanian Prime Minister 28 September 2013 First test batteries produced Investment assistance support claim received Start/Stop focus increasing MUTLU According to plan MTO process complete now shareholding at 96,7% Minority squeeze out process started Targeting 100% by year-end Very good first half result First full second half exposure Establish a Start/Stop R & D center 35

36 ACQUISITION HEALTH CHECK ROMBAT Transfer of Associates Complete Transfer of Technology In progress Integration Complete Change Management Complete Start/Stop facility Complete Secure subsidy for Start/Stop facility Complete Expansion of aftermarket footprint Europe In progress Availability of recycled material Improved Start/Stop product approval In progress Secure Start/Stop OE customers In progress MUTLU Transfer of Associates Under Review Transfer of Technology In progress Integration In progress Change Management In progress Expansion of aftermarket footprint In progress Start/Stop product approval In progress Secure Start/Stop OE customers In progress Established Start/Stop R & D center Under review 36

37 START/STOP BATTERY DEVELOPMENT 37

38 START/STOP BATTERY DEVELOPEMENT Structural Technical Carbon footprint reduction focus still very strong Fuel efficiency improvement focus increasing Start/Stop systems remain the most cost effective way Legislative environment affecting change continue to be in place Mutlu acquisition refocusing and assisting in technology rebalance Mutlu acquisition vastly improving Metair Group battery technology base Re-balance technology to EFB from AGM type products Mutlu Akü already supplying three OEM customers with EFB products Rombat obtained approval for EFB range products from some OEM s Mutlu is the first group company to simultaneously pass all OEM specifications on AGM products Mutlu Akü proved to be group leader in AGM product technology FNB starts AGM product refinement and improvement program Commercial Metair not competitive on two German car manufactures AGM tenders Receive three new EFB and AGM Start/Stop battery enquiries Competitive on a regional basis International competitiveness require focus and improvement Made significant progress on development of international brand relationships Committed outcome of current interest should be known by year-end 38

39 PROSPECTS 39

40 PROSPECTS DEPEND ON Original Equipment (OE) Strike effects of 4,5 weeks SEIFSA NUMSA strike Catch back program run by OEM s Effectiveness of cost saving progress to contain destabilization effect Stablistation of labour environment Europe and other export market vehicle demand Exchange rate volatility Aftermarket European demand in winter period Export demand in winter period Severity of winter in Europe and export markets Market share growth in local markets SA Government ruling in regard to the dumping of batteries from Korea Effectiveness of Groups RARE marketing program Non-Automotive Return of demand in mining sector Competitiveness improvement in product range Retail sector demand Stand-by product demand Effectiveness of Groups RARE marketing program 40

41 PROSPECTS DEPEND ON Mutlu Akü Performance Integration progress Minority squeeze out Synergy extraction Commodity price movement Exchange rate movements and volatility OE and Aftermarket and export demand Geopolitical environment Staying true to its second half performance nature Stabilisation of manufacturing environment Availability of labour Severity of catchback programs of OEM Clear view of stable production level Balancing of business against medium-term demand Return of manufacturing excellence and efficiency Geo and Social Political Middle East political situation Russian political situation Sanctions currently not affecting Turkey trade in Russia Battery product not on product sanction list No customer of companies on sanction list 41

42 Q & A 42

43 DISCLAIMER The information supplied herewith is believed to be correct but the accuracy thereof at the time of going to print is not guaranteed. The company and its employees cannot accept liability for loss suffered in consequence of reliance on the information provided. Provision of this data does not obviate the need to make further appropriate enquiries and inspections. 43